SENECA INSURANCE COMPANY v. KEMPER INSURANCE COMPANY

The opinion of the court was delivered by: PETER LEISURE, District Judge

OPINION AND ORDER

Plaintiff Seneca Insurance Company ("Seneca"), a New York corporation
with its principal place of business in New York, filed a complaint
against defendant Kemper Insurance Company ("Kemper"), an Illinois
corporation with its principal place of business in Illinois. Plaintiff
seeks damages for the costs of legal fees associated with its defense of
an antitrust claim against defendant's insured, USA Equestrian, Inc.
("USA Equestrian"). Defendant moves to dismiss this action pursuant to
Federal Rule of Civil Procedure 12(b)(6). Plaintiff opposes the motion.
For the reasons stated below, the Court grants defendant's motion.

Michael W. Gallagher, a Florida resident, is a member of USA Equestrian
and organizes horse shows in Florida. (Plaintiff's Opposition, Exh. 1,
¶ 4 ("JES Compl.").) From 2000 to 2003, Gallagher applied to USA
Equestrian to organize "Recognized Horse Shows" on certain dates and in
certain locations in Florida. (JES Compl., ¶ 42.) USA Equestrian denied
several of Gallagher's applications on the ground of "mileage conflicts."
(JES Compl., ¶ 42.) During the same period, JES Properties ("JES"), a
Florida corporation that holds horse shows in Florida, applied to USA
Equestrian to organize Recognized Horse Shows on certain dates and in
certain locations in Florida, which differed from Gallagher's. (JES Compl.,
¶ 41.) USA Equestrian denied several of its applications, also on the
ground of mileage conflicts. (JES Compl., ¶ 41.)

In a July 6, 2001, letter to USA Equestrian ("Gallagher Claim"),
Gallagher's counsel alleged that USA Equestrian's policy of declining to
designate certain horse shows as Recognized Horse Shows on the ground of
mileage conflicts constituted a restraint of competition in violation of
antitrust laws. (Compl., ¶ 9; Notice of Motion and Motion of Defendant
Kemper Insurance Company to Dismiss ("Notice of Motion"), Exh. 1 ("First
Trupp Letter").) USA Equestrian submitted the Gallagher Claim to Seneca.
Seneca disclaimed coverage on the ground that the Seneca Policy did not
apply to claims involving antitrust violations. (Plaintiff's Opposition,
Exh. 3, at 2 ("Milner Letter").) Seneca, however, stated that because the
duty to defend is broader than the duty to indemnify, Seneca would defend
the claim under a reservation of rights. (Milner Letter, at 2.)

In a July 26, 2002, letter to USA Equestrian, counsel for JES and
Gallagher (the same attorney who had written the July 6, 2001 letter on
behalf of Gallagher) stated that both parties intended to file a
complaint seeking injunctive relief and damages against USA Equestrian
for antitrust violations. (Compl., ¶ 12; Plaintiff's Opposition, Exh.
4, at 1 ("Second Trupp Letter").) On August 29, 2002, JES and Gallagher
jointly filed the complaint ("JES Claim") in the United States District
Court for the Middle District of Florida. (Compl., ¶ 13.) USA Equestrian
submitted the JES Claim to Kemper. Kemper rejected the claim on two
grounds. (Compl., ¶ 15; see Defendant's Memorandum of Law in Support of
Its Motion to Dismiss, at 3 ("Defendant's Memo").) First, Kemper disclaimed coverage of the JES Claim on the ground that
the Kemper Policy's "first-made" provision applied. This provision deems
claims that arise from "Interrelated Wrongful Acts" to be one claim
"first made" on the date of the earliest claim:

All Claims arising from the same Wrongful Act and all
Interrelated Wrongful Acts shall be deemed one Claim,
and such Claim shall be deemed to be first made on the
earlier date that (i) any of the Claims is first made
against an Insured under this Policy or any prior
policy, or (ii) valid notice was given by the Insured
under this policy or any prior policy of any Wrongful
Act or any fact, circumstance, situation, event,
transaction or cause which underlies such Claim.
Coverage under this policy shall only apply with
respect to Claims deemed to have been first made
during the Policy Period and reported in writing to
the Insurer in accordance with the terms herein.
(Kemper Policy, at 8.)

Pursuant to this provision, Kemper concluded that the July 6, 2001,
Gallagher letter and the August 29, 2002, JES Claim were both claims;
that these claims arose from the same "Wrongful Acts" and "Interrelated
Wrongful Acts"; that together they thereafter constituted one claim first
made on July 6, 2001, prior to the Kemper Policy period; and that
consequently the Kemper Policy did not cover the claim. (Compl., Exh. B,
at 2-3 ("Forsyth Letter").) Seneca contests this argument. (Plaintiff's
Opposition, at 4-5.)

Second, Kemper argued that even if the first-made provision did not
apply to disclaim coverage of the JES Claim, the JES Claim was excluded
under the Kemper Policy's "prior insurance" provision. This provision
excludes coverage for claims that arise from Wrongful Acts under other
insurance policies, subject to certain conditions:

A. The Insurer shall not be liable for Loss arising
from any Claim made against any Insured: 1. based
upon, arising from, or attributable to: (a) any
Wrongful Act, fact, circumstance or situation which
has been the subject of any written notice given under
any other policy, providing such policy would have
provided coverage but for the exhaustion or diminution
of its limits of liability; or (b) any other Wrongful
Act whenever occurring, which, together with a
Wrongful Act described in (a) above, constitute
Interrelated Wrongful Acts." (Kemper Policy, at 5
(emphasis added).)

Seneca also contests this argument. (Plaintiff's Opposition, at 4-5.) Subsequently, Seneca filed the current complaint against Kemper. Seneca
alleges that Kemper has failed to comply with Kemper's obligations to
defend USA Equestrian against the JES Claim. (Compl., ¶¶ 20, 21.) In
response, Kemper moves to dismiss Seneca's complaint on two grounds: (1)
The JES Claim was "first made" prior to, not during, the Kemper Policy
period and thus is not covered by the Kemper Policy; (2) alternatively,
even if the JES Claim was first made during the Kemper Policy period and
thus is covered by the Kemper Policy, the JES Claim is excluded by the
Kemper Policy's "prior insurance" provision. (Defendant's Memo, at 3.)
Because the JES Claim was first made prior to the Kemper Policy period,
the Court grants the defendant's motion to dismiss.

Discussion

I. Motion To Dismiss Standard

The Court will grant a motion to dismiss under Rule 12(b)(6) only if
"it appears beyond doubt that the plaintiff can prove no set of facts in
support of his claim which would entitle him to relief." Conley v.
Gibson, 355 U.S. 41, 45-46 (1957). The complaint, however, "must include
allegations concerning each of the material elements necessary to sustain
recovery under a viable legal theory." Huntington Dental & Med. Co.,
Inc. v. Minnesota Mining & Mfg. Co., No. 95 Civ. 10959, 1998 WL 60954,
at *3 (S.D.N.Y. Feb. 13, 1998). The Court must accept the complaint's
allegations as true, read the complaint generously, and draw all
reasonable inferences in the plaintiffs favor. Conley, 355 U.S. at 46;
Hospital Bldg. Co. v. Trustees of Rex Hospital 425 U.S. 738, 740 (1976);
Dublin v. E.F. Hutton Group, Inc., 695 F. Supp. 138 (S.D.N.Y. 1988). The
factual allegations set forth in the complaint do not constitute findings
of fact by the Court; instead, they are presumed to be true for the
purpose of deciding the motion to dismiss. AIM Int'l Trading, L.L.C. v.
Valcucine S.p.A., 2003 U.S. Dist. LEXIS 8594, at *9 (S.D.N.Y. May 21, 2003). Consequently, "the issue is not whether a plaintiff will
ultimately prevail but whether the claimant is entitled to offer evidence
to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). When
ruling on a motion made under Rule 12(b)(6) of the Federal Rules of Civil
Procedure, the Court limits its consideration "to the factual allegations
in [the] complaint . . ., documents attached to the complaint as an
exhibit or incorporated in it by reference . . ., matters of which
judicial notice may be taken . . ., or documents either in plaintiff['s]
possession or of which plaintiff[] had knowledge and relied in bringing
the suit." Brass v. Am. Film Tech., Inc., 987 F.2d 142, 150 (2d Cir.
1993).*fn1

II. The Kemper Policy Does Not Cover the JES Claim Because the Gallagher
Claim and the JES Claim Are Deemed One Claim First Made Prior to the
Kemper Policy Period

To determine whether the JES Claim was "first made" during the Kemper
Policy period, the Court must apply the standards governing the
interpretation of insurance contracts under New York law to determine:
(1) whether the Gallagher Claim is deemed a "claim" under the Kemper
Policy; and (2) if so, whether the Gallagher Claim and the JES Claim
arise from the same Wrongful Act or, alternatively, from Interrelated
Wrongful Acts. If the Gallagher Claim and the JES Claim arise from the
same Wrongful Act or from Interrelated Wrongful Acts, then they are
deemed one claim pursuant to the Kemper Policy's "first-made" provision.
Moreover, this one claim is deemed to have been first made on the earlier
date of the claims at issue. The Court concludes that the JES Claim was first made prior to the
Kemper Policy period and thus is not covered by the Kemper Policy. The
July 6, 2001, Gallagher Letter is a claim filed during the Seneca Policy
period, and the JES Claim is a claim filed during the Kemper Policy
period. The Kemper Policy's "first-made" provision, however, unambiguously
provides that all claims arising from Interrelated Wrongful Acts shall be
deemed one claim first made on the date of the earlier of the claims. The
Gallagher Claim and the JES Claim arise from, at minimum, Interrelated
Wrongful Acts because they share a sufficient factual nexus. Thus, ...

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